Build an Annual Budget with Ease

Development and Finance walk hand in hand, and the foundation of that relationship is the budget.

Your annual budget is a financial reflection of the aspirations that you have for your work. As a guidance system, it acts as a touchstone for your goals and priorities throughout the year. And when done right, it also gives the sense of security, relief, and freedom that only a balanced budget can provide.

A sound budget will also simplify the choices you will need to make in your work and minimize decision fatigue, a syndrome that anyone with limited resources knows all too well.

Gather your people.

First off, determine who needs to be involved in creating your budget. On a basic level, this is likely team members or collaborators who know the true cost of your programming, specialized advisors you can call on for technical expertise, and leadership tasked with making decisions.

However, there is another core contingent of allies who I particularly embrace for this process.

Creative thinkers who can craft an enterprising solution that will wiggle around the inevitable shortfalls. Someone who will say, “Well, we don’t have the cash to do that but here is how we can still make it happen.”

And, how shall I put this? I look for people who do not respond to overwhelm by sticking their head in the sand. There is nothing worse than sweeping numbers under a rug hoping the problem will go away. It won’t.

Because a budget is both a guide and a living document that can shift throughout the year, I appreciate people who maintain an equilibrium between an having an affinity for the black and white nature of numbers while still possessing a flexible mindset. Budgets may be lines drawn in the sand, but they are not engraved in marble.

Along with that, I want Zen masters in the room. Talking about money can be a trigger for any number of intense emotions. Players who embody the practice of compassionate response and exude a feeling of calm reasoning are invaluable.

Layout the timeline.

From a practical perspective, nearly every grantmaking funder will need an annual operating budget in order to fund you. That alone can serve as solid motivation to get it done. In that vein, begin with the end in mind. When do you need your budget in place? What needs to happen to get it there? Consider the process on a yearly cycle and schedule it on the calendar accordingly. Leave plenty of room in your timeline to bring your people together, gather all of the information you will need, align the numbers with your vision and aspirations, dive into details and then allow everyone an opportunity to review before finalizing.

Set the stage.

Budgets require a fair amount of information. Some of it is vision-oriented thought work. Some of it is brass tacks. Begin by evaluating a few elements ahead of time:

What do you want to accomplish this year? It’s a big question, so keep it real and be sure it tangibly reinforces the vision for your work. Review your priorities and primary objectives for the year.

What will it take to do that? Start with the people you will need to empower. This is not only about salary and compensation, although that is part of it. This is also about how you will uplift the people who do the work, acknowledge them for their dedication and nurture an environment where everyone thrives. This may be where your creative thinker comes in.

After that, delve into details. What will things actually cost? Gather data and estimates. This is also the time for a reality check on the funding you have in hand.

Build the budget.

Now we take all of that information and translate it into numbers on a spreadsheet that will forecast the year’s income and expenses. As a rule, I project income low and estimate expenses high.

I begin with income because I prefer to know what we have to work with first. I look at what funding has already been committed and what funding I can reasonably project will come in. I don’t include any opportunities or funding proposals that may be in the pipeline but don’t have a stable relationship yet. I have found that including long shots in projected income only adds to stress down the road, so I keep it cautious and conservative.

At the other end of the spectrum, I estimate expenses on the high end for the same reason – to minimize stress down the road. I also make life easier by ensuring that the categories I assign for each line item in the projected expenses are synchronized with the categories our bookkeeping software utilizes in its chart of accounts and the categories we will eventually need in our tax returns and financial audits. A few standard categories to get you started would be Personnel, Rent, Supplies, Equipment, Utilities, Travel, and Consultants.

While you are building the budget, be sure to document all of your formulas, assumptions, and justifications for each line item. The budget will go through changes and revisions throughout the year, and you will not want to rely on your memory of how you reached a specific figure. I document all of this through the comment feature on Excel and Google spreadsheets.

After you feel good that everyone has had a chance to chime in and that the numbers are as solid as they can be, please celebrate. It takes a lot of energy to get to this point.

Embrace change.

Because the budget is a dynamic document, it will likely shift depending on the day-to-day realities on the ground throughout the year. Alongside of laying out your timeline to create the budget, also schedule in time throughout the year to monitor actual income and expenses, and revise your projections as necessary. Monitoring expenses on a monthly basis is usually sufficient, while a budget review and revision should occur either quarterly or at mid-year.

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